The Flattening of the U.S. Treasury Yield Curve


According to Wikipedia, the term yield curve “…is a curve showing several yields or interest rates across different contract lengths (2 month, 2 year, 20 year, etc. …) for a similar debt contract. The curve shows the relation between the (level of the) interest rate (or cost of borrowing) and the time to maturity, known as the “term"…”

The Fed has continued to push short-term interest rates up, and meanwhile long-term interest rates have moderated back to historic lows. The current difference between the 5-year treasury (1.82%) and the 10-year treasury (2.22%) as of today (6/28/2017) is 40 basis points. Throughout the first half of this year, there has been a consistent flattening of the US Treasury yield curve. In other words, long-term yields have come down while short-term yields have come up.

The flattening of the US Treasury yield curve has created an environment where a borrower may get a lower long-term fixed rate than what they are offered on a shorter rate. It is a good time for borrowers with large portfolios to make sure they have the most competitive loan possible. The timing of the flattened yield curve may be an opportunity to convert floating rate loans as well as short-term loans into long-term fixed rate loans.